Russian retailer X5 expands in Siberia as investment drive continues

Russian retailer X5 Group (FIVEDR.MM) is stepping up an investment drive with plans to buy controlling stakes in two Siberian companies, open hundreds of new stores of its discount chain Chizhik and cut the price of many food staples.

Russia’s leading food retailer said on Tuesday it had launched strategic partnerships with retailers Krasny Yar and Slata in eastern Siberia, significantly expanding its footprint in the region. The deal, subject to regulatory approval, would see X5 acquire 70% in each firm.

It gave no indication of what it was paying for the purchases but said it would continue looking for acquisition opportunities.

X5 chief Igor Shekhterman said the company had made price investments into basic staples to offset inflation, which soared after Russia sent tens of thousands of troops into Ukraine on Feb. 24.

Last month the retailer said Russian shoppers were switching to cheaper food items because of a drop in real disposable income, with its discount chain Chizhik seeing significant growth in sales.

Shekhterman earmarked Chizhik as a particular target for development, planning more than 400 new store openings this year, and said he wanted the network to become accessible to many Russians as soon as possible, after a 30-fold increase in Chizhik’s first-half revenue year-on-year.

“(Chizhik) performs a social function that is relevant for today – raising the quality of life for the population through providing affordable, quality food at low prices,” he said in a statement.

X5 also reported a near 80% jump in second-quarter net profit to 26.8 billion roubles ($447 million) on revenue up 18.6% year-on-year to 648.0 billion roubles.

Adjusted earnings before interest, tax, depreciation and amortisation increased 26.9% to 91 billion roubles.

The company anticipated margins stabilising at lower levels in the second half of the year, helped by strong profitability this quarter and as the group develops its private labels and diversifies its supplier base.

Western sanctions against Moscow over its actions in Ukraine have hit the Russian economy, particularly its financial sector and imports, which have slowed markedly.

“The group is not subject to any sanctions or restrictions at the moment, but is likely to encounter challenges due to sanctions on (the) financial system and certain imports into Russia,” X5 said.

The company’s Moscow-listed depositary receipts were 0.3% lower as of 1113 GMT, outperforming the wider market.

($1 = 60.0000 roubles)